Extracting Maximum value out of your Hotel and Restaurant Property.
Posted, February 14th, 2015
There continues to be increasing competition for your hotel & restaurant sales dollar. At the same time, it is becoming more difficult to extract maximum value out of your hotel or restaurant property.
Ensuring that you fully utilise your business real estate is critical to maintaining good profit margins. Recent world economic conditions have made it more difficult for Hotels and Restaurants to maintain good profit margins. Cost cutting measures have become more common.
It was interesting to read in recent AFR about hotels in USA who have just about reached their limit in cost reductions. They are now looking for alternate streams of income. The article mentioned that many hotels are planning to generate additional business revenue of at least 10% through non-traditional hotel sales. Some of the alternate uses for low income producing areas include subleasing or operating other businesses. They included Art Galleries, doctors surgeries, yoga centres etc.
You might ask ? How can I apply this to my hotel, restaurant or other leisure/hospitality property/business?
What is property apportionment?
This is generally called property apportionment. In a simple form you divide your property into the various services and revenue departments within the property such as fine dining area, cocktail bar, cafe, accommodation rooms etc. After this is done you work out the revenue per square metre. This would give you a good guide of how you are utilising your property?s space. You also need to take into account that there are obviously areas within the property that received little or no income which are essential to the main profit areas.
A simple example of how this would work is as follows: Take for example a restaurant with an attached coffee shop area. In this example we will say that your property is turning over $20,000 per week and the restaurant takes up 150 m? was the cafe takes up 50 m?.
The revenue is as follows;
Restaurant $12,000 p/w earning $80m2 p/w
Cafe $8,000 p/w earning $160m2 p/w
From the above you can see that the Restaurant is earning 40% more revenue than the Coffee Shop. After we apportion the revenue per square metre we get a better idea of the revenue performance. In this case the cafe is earning $4000 per week less than the Restaurant. More importantly, the Cafe is turning over twice the amount per square metre of the restaurant.
The property value?
This would provide a strong case for the owners to consider increasing the size of the cafe. In addition, reducing the size of the restaurant. Alternately, ?possibly utilising or leasing out any extra low or non income producing areas.
This would depend on various items. Thse include construction costs, menu pricing and yields, practicality, whether the cafe can attract the extra clientele etc.
Successful implementation of this would result in extra revenue and ultimately a higher selling price when it is time to sell your leisure or hospitality property.
We plan to cover this subject in more detail in future blogs. Like to discuss this further? Contact Con Tastzidis on 9882 2221